Isle insurance costs likely to soften

Hawaii's homeowner's premiums could benefit from a drop in reinsurance rates

After suffering through a 28.5 percent run up in insurance costs during the last few years, Hawaii homeowners are likely to realize some relief.

A decrease in the number of natural disasters and in insurers' own insurance costs has improved the economic picture for the carriers, who will likely pass the savings to Hawaii consumers, says state Insurance Commissioner J.P. Schmidt.

And a national study indicates that when it comes to a comparison of homeowner's insurance premiums throughout the nation, Hawaii ranks about average.

INSURANCE PREMIUMS

Hawaii's home prices are among the highest in the nation, but homeowners' insurance premiums are close to the U.S. average.

RANK

STATE

2004

2003

03-04 CHANGE

1

Texas

$1,362

$1,328

2.60%

2

Louisiana

$1,074

$975

10.20%

3

Oklahoma

$991

$925

7.10%

4

Florida

$929

$810

14.70%

5

Mississippi

$907

$793

14.40%

21

Hawaii

$726

$687

5.70%

--

National

$729

$668

9.10%

Source: National Association of Insurance Commissioners

Hawaii is likely to see homeowner's insurance premiums soften in the coming months, according to the state's insurance commissioner.

The cost of doing business for most primary insurers declined in January after reinsurance companies dropped their rates and Hawaii consumers could see a corresponding benefit, state Insurance Commissioner Jeffrey P. Schmidt said yesterday.

Reinsurance companies offer insurance policies to insurers that want to reduce their risk, so movement in this market often creates a domino-effect in the primary insurance market, Schmidt said.

"We've seen a softening and reduction in prices that affect the cost of doing business for the primary insurers so it's likely that they will pass this savings to consumers who will see reductions in the premiums for their homeowner's policies," he said.

Even though Hawaii's property values are well above national averages, state consumers aren't suffering correspondingly lofty premiums, according to data released last month by the National Association of Insurance Commissioners.

In 2004, the most recent year for which data was available, the average annual cost to insure a home in Hawaii was $726, 21st in the nation and just slightly under the U.S. average of $729, the NAIC said in its February report. Hawaii's 5.7 percent increase in premiums between 2003 and 2004 ranked 44th out of all states and the District of Columbia.

Although Hawaii consumers pay more for their homes than many other regions in the United States, most of those costs are tied up in the land, Schmidt said. Since insurance premiums are based on the actual replacement costs of the structure, they tend to be lower in Hawaii than in other high-priced real estate markets, he said.

Consumers living in states with the most wind and hail -- like Florida, Louisiana, Mississippi, Kansas and Oklahoma -- experienced the highest premium costs, the NAIC report said. Coastal areas, where property values tend to be higher and the likelihood of a hurricane is greater, also got little relief from rising premiums.

Although Hawaii experienced earthquakes and flooding last year, those events had little impact on insurance claims, Schmidt said.

"They aren't typically covered by homeowner's policies," he said.

The anticipated decline in 2007 homeowner's insurance premiums for Hawaii would compensate for the significant increases that have been sustained since 2002. Homeowner's premiums in Hawaii rose 28.5 percent from 2002 to 2004, NAIC figures indicate.

Property and casualty insurers have experienced good fortune for the past several years and as a result have been able to establish a stronger financial base, Schmidt said.

"Last year, we did not have any significant events and companies were able to get back on their feet after sustaining serious damage from the prior years," he said. "Historically, when that occurs, we see rates soften.